Many investors expect that advances in artificial intelligence (AI), together with heavy investment in chips and data centers, will accelerate U.S. economic growth and lift corporate profits — supporting the ongoing equity rally. At the same time, several market participants warn that parts of the market may be overheated after rapid gains.
The data
- The S&P 500 closed at record highs 11 times in May, accounting for a large share of the month’s trading days. The index is up roughly 11 percent year to date.
- The technology-heavy Nasdaq has climbed about 16 percent so far this year.
- The Philadelphia Semiconductor Index has surged roughly 81 percent year to date, its strongest showing since 1999.
- Companies tied to data‑center storage and AI have posted extraordinary moves: Sandisk has risen about 600 percent in 2026 year to date, while other AI‑linked names — including Micron, Dell Technologies, Intel, Seagate and Western Digital — have gained more than 200 percent.
- Nvidia, the best‑known AI beneficiary referenced in the article with an approximate $5 trillion market value, is up around 13 percent so far this year.
- According to FactSet, the S&P 500 currently trades at roughly 21 times next‑12‑months earnings versus a 30‑year average of 17 times.
These figures show that the AI rally has materially lifted overall market valuations.
Competing views: durable fundamentals or froth?
Views among strategists are mixed. Steve Chiavarone, deputy chief investment officer for global equities at Federated Hermes, told the Financial Times that he does not see bubble conditions and believes the market is in the middle of a long bull cycle that could still have room to run. Goldman Sachs and Morgan Stanley have likewise raised year‑end S&P 500 targets after stronger‑than‑expected first‑quarter corporate results.
But several investors have sounded caution. Michael Burry, known for betting against the U.S. housing market before the 2008 crisis, has repeatedly warned that AI euphoria recalls the excesses of the dot‑com era. Hedge fund manager Paul Tudor Jones described the recent period as “crazy” and drew parallels to market conditions in late 1999.
Risks and potential corrections
Mike Wilson, Morgan Stanley’s head of U.S. equity strategy, warned that some individual stocks could suffer corrections of 15–20 percent. He added that while overheated stretches and corrections are likely, the market as a whole could continue to move higher.
Ben Snider, Goldman Sachs’ head of U.S. equity strategy, noted that the classic signs that typically mark the end of a bull market — speculative mania, shrinking profit margins or aggressive Federal Reserve rate hikes — are not yet evident, supporting his expectation that the rally may persist.
Denise Chisholm, director of quantitative market strategy at Fidelity, argued that the market’s risk‑reward remains attractive because she expects profit growth to be more durable than many anticipate; sustained earnings would justify higher valuations over the long term.
Large IPOs will test appetite for more AI exposure
Investors are also watching sizable upcoming initial public offerings that will test demand for new AI‑related listings. The article notes that an Elon Musk‑backed company focused on AI and space filed IPO paperwork last week, and that OpenAI (developer of ChatGPT) and Anthropic (behind Claude) are also expected to pursue listings.
Context: gains after turbulence
The current rally has unfolded after the market overcame several hurdles. The S&P 500, for example, has climbed about 57 percent from a trough reached around the market jitters tied to U.S. tariff announcements in April 2025. Several strategists say that holding equities through periodic shocks has typically paid off for long‑term investors rather than selling or betting on declines. As Chisholm put it, “Negative news is often a buy, not a sell.”
Conclusion
AI and its related investments are driving significant gains and record activity across U.S. equity markets, lifting valuations and producing standout winners in semiconductors and data‑center stocks. While many strategists believe strong fundamentals and sustained profit growth could support further upside, others warn of crowded trades and possible double‑digit corrections in parts of the market. Upcoming IPOs and future earnings reports will help determine whether the rally can be sustained.
